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Can capital formation explain why unemployment has increased since the 1970s in the OECD countries?
Stockholm University, Faculty of Social Sciences, Department of Economic History and International Relations.ORCID iD: 0000-0002-4718-6434
(English)Manuscript (preprint) (Other academic)
Abstract [en]

This paper tests to what extent the increase of unemployment in many OECD countries since the 1970s may be explained by capital formation. Using an unbalanced macro panel dataset, this study also controls for a selection of variables pointed out by earlier research such as the unemployment replacement rate and the tax wedge. Novel contributions includes an exploration of heterogeneous correlations across countries and time, and potential interaction effects between capital formation and other explanatory variables. Results indicate that unemployment primarily can be explained by a decrease in capital formation and an increase in long-term real interest rates and the tax wedge. Results do not support interaction effects between capital formation and other variables. Results indicate that capital formation and real interest rate deserves more attention in discussions on unemployment.

Keywords [en]
Unemployment, capital formation
National Category
Economic History
Research subject
Economic History
Identifiers
URN: urn:nbn:se:su:diva-177217OAI: oai:DiVA.org:su-177217DiVA, id: diva2:1380369
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0133Available from: 2019-12-18 Created: 2019-12-18 Last updated: 2020-02-24Bibliographically approved
In thesis
1. Empirical essays on unemployment and business cycles
Open this publication in new window or tab >>Empirical essays on unemployment and business cycles
2020 (English)Doctoral thesis, comprehensive summary (Other academic)
Abstract [en]

This dissertation examines business cycles in Sweden, and the patterns in and driving forces of short- and long-term movements in unemployment in a selection of high-income countries throughout the 20th century. While this has been studied numerous times before, this dissertation starts from the point of view that there is no consensus in social science on how to understand these phenomena. This study consists of an introductory chapter and four related but self-contained papers. One contribution of this thesis is the use of temporal disaggregation methods to estimate more detailed time series on gross domestic product (GDP) and unemployment. New quarterly estimates of GDP are then used, with the help of the Bry-Boschan algorithm, to reconstruct the Swedish business cycle in the period 1913–2014. This identifies a number of new patterns not visible in the annual data. A second contribution is different analyses of the extent to which unemployment can be explained by macroeconomic indicators such as GDP growth, capital formation and productivity. Different methods, such as band spectrum regression and wavelet analysis, are used to capture longer-term effects. Numerous results are presented that indicate that macroeconomic performance, notably capital formation, can have medium- to long-term effects on unemployment. This is in line with theoretical models on equilibrium unemployment that take account of the possibility of persistence in the return to long-run equilibrium, or models that comprise more than one unemployment equilibria. While this is not unknown in previous research, it contradicts several highly influential versions of equilibrium unemployment models, as well as a great body of research on the subject. These contributions have several important implications for future research. Historical chronologies should take account of the possibility that data of higher or lower frequency may lead to important differences in results. Empirical and theoretical research on labor markets should continue to investigate more deeply the possibility that unanticipated short-term events can have long-term effects on labor market outcomes.

Place, publisher, year, edition, pages
Stockholm: Department of Economic History and International Relations, Stockholm university, 2020. p. 45
Keywords
business cycles, Okun’s law, unemployment, capital formation, temporal disaggregation, band spectrum regression, wavelet analysis
National Category
Economic History
Research subject
Economic History
Identifiers
urn:nbn:se:su:diva-177231 (URN)978-91-7797-821-3 (ISBN)978-91-7797-822-0 (ISBN)
Public defence
2020-02-28, Nordenskiöldsalen, Geovetenskapens hus, Svante Arrhenius väg 12, Stockholm, 13:00 (Swedish)
Opponent
Supervisors
Funder
The Jan Wallander and Tom Hedelius Foundation, P15-0133Ragnar Söderbergs stiftelse
Note

At the time of the doctoral defense, the following papers were unpublished and had a status as follows: Paper 2: Manuscript. Paper 3: Manuscript. Paper 4: Manuscript.

Available from: 2020-02-05 Created: 2019-12-18 Last updated: 2020-03-13Bibliographically approved

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Citation style
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